English, Article, Journal or magazine article edition: MACRO AND FINANCIAL MARKETS: The memory of an elephant? Karim M. Abadir; Gabriel Talmain

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Bookmark: http://trove.nla.gov.au/version/145180
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • MACRO AND FINANCIAL MARKETS: The memory of an elephant?
Author
  • Karim M. Abadir
  • Gabriel Talmain
Physical Description
  • preprint
Notes
  • Macroeconomic and aggregate financial series share an unconventional type of nonlinear dynamics. Existing techniques (like co-integration) model these dynamics incompletely, hence generating seemingly paradoxical results. To avoid this, we provide a methodology to disentangle the long-run relation between variables from their own dynamics, and illustrate with two applications. First, in the forward-premium puzzle, adding a component quantifying the persistent nonlinear dynamics of exchange rates yields substantial predictability and makes the forward-premium term insignificant. Second, S&​P 500 grows in a pattern of momentum followed by reversal, forming long cycles around a trend given by GDP, a stable non-breaking relation since WWII. Classification-JEL:
  • RePEc:rim:rimwps:17-08
Language
  • English
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